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Market snapshot

Office Market Pulse East Midlands Q3 2015

Following a
steady start to the year, the East Midlands office market saw the largest
single inward investment office deal complete in Leicester and a landmark deal
for Derby during Q2. On top of this Q3 saw the most significant relocation back
into the city centre in Leicester with Mattioli Woods taking a pre sale of new
build space in the professional district. Activity in the Nottingham market
continues to be led by refurbished buildings in the absence of any new
development.

Nottingham on course to meet average annual take-up

Take-up totalled 114,390 sq ft – a decrease on Q2
but keeping the city on course to meet average annual take-up. There was
also a higher than average take-up of owner occupier purchases reversing the
trend for office to residential conversions.

While the number of transactions was evenly split
between city centre and out-of-town, the city dominated with over
70%.

City transactions dominate Leicester take-up

Leicester saw a total of 149,500 sq ft of office take-up - an increase of
15% from Q2 and demonstrating a continual solid performance.

City centre transactions once again dominated activity, with 80% of the
total market share. Compared with Q2, city centre transactions increased by 35%
- a result of both large transactions for the quarter being in the city.

The pre-sale of 50000 sq ft at Welford Place to Mattioli Woods marks a
significant sea change for the city centre office market and re-establishes the
New Walk area a key office destination. It also demonstrates occupier demand
for city locations. On a smaller scale below 5,000sqft, 16 transactions were
recorded – all evenly spread over the city centre and out-of-town markets.

Take-up increases 74% in Derby

Take-up totalled 101,389 sq ft with the largest transaction a
sale of Roman House, Friar Gate. This represents 74% increase on the last
quarter for the city with 16 transactions recorded and
the majority being within the city centre.

Supply

Supply of grade A office accommodation
remains remarkably low with only three units in Nottingham One and one
floor in F&C REIT’s 37 Park Row still available.Grade
B/C space still occupies the majority percentage, some of which are expected to
leave the market within the year for residential conversion. Availability in
the centre and out of town markets currently stands at approximately 1.65m sq
ft. In the absence of new build opportunities needed to satisfy occupy
requirements, the focus remains on refurbishment opportunities

Overall availability in Leicester currently
stands at 645,000 sq ft, demonstrating little change over Q2. The market continues
to be dominated by grade B/C space excluding the welcome completion of the
grade A Marlborough Court scheme at Watermead. Compared with Q2, grade B
availability decreased by 25% due to the completion of a number of freehold
sales under the Permitted Development Rights. Out-of-town availability across
all grades currently sits at just 36% of total overall supply, mainly caused by
a continued lack of new development, which has a knock on effect in occupiers
being unable to trade up from existing space.

In and out-of-town office availability in
Derby currently totals approximately 595,000 sq ft although much of the
available space is grade C and does not meet current modern occupier
requirements, being vacant for a significant period of time. The acute lack of
supply on Pride Park has not altered where the vacancy rate remains less than
3% and the largest space currently available still remains at 6,500 sq ft.
Speculative development, albeit relatively small scale, is underway out-of-town
in the form of Quarnmill’s Bradgate Park View, at the entrance to Derby’s
proposed 250-acre mixed commercial and technology development known as Infinity
Park.

Investment overview

Investment in the East Midlands in Q3
totalled £298m, a 41% decline on Q2 2015 but remains 5% above the five-year
quarterly average for the region.

The most significant transactions were:

The purchase of 29,343 sq ft at The Poynt
Building in Nottingham by Blenheim Chalcot Management Ltd for £3,000,000 – an
award-winning development designed by Marchini Curran Associates which is to be
transformed into a technology hub

The sale of Roman House at Friar Gate by
Derby City Council to Carlton Street Trading Ltd and Baldwin Puddle Investments
– 35,406sq ft of high quality office block for £1,200,000

The pre sale of 50000sf D&B offices by
developer Ingleby(1245) Ltd to Mattioli Woods at Welford Place New Walk,
Leicester